Portuguese Five-Year Yields Approach Record Low

Portugal’s bonds rose, pushing five-year yields toward a record low, after Prime Minister Pedro Passos Coelho said the nation’s finances were strong enough to exit its bailout program without a precautionary credit line.

German 10-year bund yields were little changed after sliding to the lowest in a year. Portugal will be the third country to leave a rescue program, following Ireland’s exit in December and Spain’s the following month. That leaves Cyprus and Greece still in receipt of bailouts from international lenders, known as the troika, four years after the Greek government was granted outside aid at the onset of the euro-area debt crisis.

“We continue to see value in Portuguese bonds,” said Alessandro Giansanti, a fixed-income strategist at ING Groep NV in Amsterdam. “The Portuguese government has a good track record in fiscal consolidation and it has always met the troika requests. The decision not to apply for a precautionary credit line comes as a surprise.”

Yields on Portugal’s five-year bonds fell three basis points, or 0.03 percentage point, to 2.46 percent at 4:40 p.m. London time. They reached 2.44 percent on April 22, the lowest on a closing-price basis since Bloomberg began collecting the data in 1997. The 4.75 percent bond maturing June 2019 rose 0.12, or 1.20 euros per 1,000-euro ($1,388) face amount, to 110.86.

The rate on 10-year securities slid two basis points to 3.61 percent. It rose to a record 18.29 percent in January 2012.

Successful Strategy

“We are making this choice because the strategy of returning to the market was successful, and because we made enormous progress in budget consolidation and because we recovered our credibility,” Coelho said yesterday. “We have financial reserves for a year, which protect us from any external disturbance.”

The troika comprises the European Union, European Central Bank and the International Monetary Fund.

Portugal’s bond yields were more than twice their current level as recently as September on concern the country would need more aid. Its economic renaissance comes as investors snap up higher-yielding euro-area securities amid signs the region’s debt crisis is abating. Yields on Spanish, Italian and Irish bonds fell to records last week.

Portuguese bonds returned 15 percent this year through May 2, according to Bloomberg World Bond Indexes. Spanish securities earned 7.5 percent and German debt gained 3.3 percent.

Limited Gains

Such outperformance compared with most euro-area peers this year means the potential for further gains in Portugal’s bonds is limited, according to Felix Herrmann, a research analyst at DZ Bank AG in Frankfurt.

“We think that it is now time to sell,” said Herrmann in a phone interview today, having recommended an overweight position in Portuguese bonds this year. “The prospects for further spread tightening seem to be reduced in the short run.”

An overweight position refers to investors holding a bigger percentage of the debt than is contained in the indexes they use to measure performance.

The nation, which had previously relied on banks to sell bonds, raised 750 million euros on April 23 auctioning securities due in February 2024. Its raised 6.25 billion euros selling debt through banks this year and has already begun obtaining funding for 2015.

German 10-year bund yields were little changed at 1.46 percent after sliding to 1.44 percent, the least since May 27 last year.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord

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